• A subheading on the article indicates that this is "Second in a series of Investigative Reports on campaignfinance." As this subheading promises, this article is an advocacy article in favor of campaign finance reform, not a dispassionate piece of news reportage on the issue of bankruptcy reform. The thesis is that campaign finance reform is necessary, and bankruptcy reform is offered as evidence to support the case. As an advocacy piece, rather than reportage, the authors apparently feel free to take liberties to shade facts, obscure contradictions, omit adverse evidence, and ignore nuance if necessary to make their point. Mischaracterizing bankruptcy reform is simply a means to advance the larger end of achieving campaign finance reform. It is disappointing that a respected newsmagazine such as Time would so blatantly sell-out its journalistic integrity to advance a particular political agenda. It is even more disappointing that Time magazine would be so willing to use an issue as important as bankruptcy reform, one that directly and indirectly touches the lives of every American, as a pawn to further this agenda.

• It's not even clear the article proves the point the authors seek to make, namely that the bill is the result of financial influence wielded by credit card companies. The article has two basic parts. The first part criticizes the means-testing and anti-fraud provisions of the bill as being too harsh. The second part criticizes the inability to come up with sensible limitations on homestead exemptions as being too lenient. Obviously these points are internally contradictory. To the extent that large homestead exemptions enable individuals to protect assets from creditors, unsecured creditors such as credit card issuers would clearly be in favor of limiting those exemptions. The fact that they have not been able to do so creates a clear contradiction between the first part of the article and the second part. The authors simply finesse this contradiction in one transition paragraph buried in the middle of the article. They also ignore a host of other provisions in the bill that run counter to the interests of credit card companies, such as the anti-stripdown provisions for secured creditors and heightened protections for child and spousal support.

Indeed, the article is almost humorously contradictory - the bill goes too far to prevent abuse, yet it doesn't go far enough to prevent abuse. It is, of course, a legitimate criticism of Congress if they don't close the homestead exemption loophole, and a criticism that I would heartily endorse. But it doesn't seem very logical to criticize Congress for going too far yet not far enough. More fundamentally, no explanation is provided for why unsecured creditors have suffered defeats on so many important issues. Ditto for Judge Cristol's observation on exemptions - when Senator Grassley offered to put pensions on the block there was a huge uproar. It seems like the principled position would be to favor elimination of all abuses by high-income and fraudulent debtors, and not just pick and choose among different abuses.

• It makes no mention of the polls consistently showing 70% approval for some type of bankruptcy reform. It doesn't mention the overwhelming sizes of the bipartisan majorities supporting the bill in both houses. It doesn't mention the bipartisan level of support for the bill, implying that it is a Republican plot. It doesn't mention the members of the Congressional Black Caucus and other liberals who voted in support of the bill (or are they tools of the consumer credit industry also?). Widespread popular support and bipartisan political support does not prove anything about the merits of the bill generally or about specific details in the bill. What it does suggest, however, is that support for bankruptcy reform is not just manufactured by lobbyist money and backroom deals. Instead, it suggests that there is good-faith support for the bill among many people who are concerned (rightly or wrongly) about the current state of the bankruptcy system. If the article were not so concerned about advancing the campaign finance reform agenda then it perhaps it could have engaged in a more enlightening discussion of the bill's substance.

• The central thesis of the article is that votes on the bankruptcy reform bill were bought with large financial contributions. The facts presented by Time magazine simply do not support this conclusion. Time implies that contributions by the consumer credit industry must have been made on the basis of influencing the bankruptcy reform bill. This implication is not justified. Bankruptcy reform is an important issue and bankruptcy reform is at the center of the universe for bankruptcy professionals. But perspective is needed. It is doubtful that bankruptcy reform holds center-stage for the banking industry. Recent years have brought a series of gigantically important legislative disputes on various issues of banking legislation. During the past year, for instance, Congress passed the Glass-Stegall repeal act, the most fundamental change in the American banking system since the New Deal. Congress has also been locked in ongoing debates over the Community Reinvestment Act. While bankruptcy is important, a realistic view of the world suggests that these other issues of banking regulation dwarf it.

The banking industry has been very active on Capitol Hill. But it would be myopic to believe that this is animated solely, or even primarily, by the bankruptcy reform legislation. Indeed, as a recent study by ABI observes, the real money has been flowing to members of the respective House and Senate Banking Committees that control these other piece of legislation, not the Judiciary Committees that control bankruptcy reform. Thus, ABI finds only a loose correlation between financial contributions and support for the bankruptcy reform bill. According to ABI, of the top 10 House recipients of consumer credit contributions, only one (Rep. Bill McCollum, R-FL) even serves on the House Judiciary Committee - and he also serves on the House Banking Committee. The top 10 list in the House also includes 5 Democrats. Of Democrats, the largest recipient was Rep. John Lafalce (D-NY), who received $94,522 from consumer creditor groups. Yet he voted against H.R. 833 and has been an outspoken critic of the bankruptcy reform bill. ABI found a similar absence of cause and effect in the Senate. In short, if the consumer credit industry thought that it was buying votes on the bankruptcy bill, then it should demand a refund.

• Why the article moves from advocating campaign finance reform to critiquing bankruptcy reform things simply get embarrassing for the authors. Does the article even understand the most basic elements of the legislation? Leaving aside difficult nuances and complications in the legislation, the authors seem to be clueless about such basic provisions as how the means-test would operate or the rules governing nondischargeability. The article is riven with ambiguities, errors, and confusions that indicate that the authors are not even familiar with the central provisions of the legislation. Indeed, it appears that they actually invented some provisions so as to advance their case. Again the point here is not whether the bill is good or bad; the point is that the article simply does not understand the bill as written.

First, they lack a basic understanding of the bill. Although their discussion of the bill is vague and difficult to follow, as far as I can tell, they seem to believe that means-testing will prohibit people from filing bankruptcy completely, not just forcing them to go chapter 13. For instance, they quote one lawyer who implies that means-testing would prohibit discharge. Nor do they ever explain the actual means-testing provisions, most notably the requirement that income exceed the national (or regional) median or that they can pay the specified percentage of their bills. Nor do they discuss the formula for determining the budgeted amount of expenditures to be deducted for purposes of applying the means-test. It is impossible to tell whether any of those discussed in the article would actually be prohibited from filing chapter 7 as a result of means-testing. Inferring from the information given, it appears that all them would be unaffected by the means-testing provisions of the bills, either because they lack sufficient income or repayment ability, or because they would be eligible under the undue hardship exception. The authors never discuss the actual means-testing formula, suggesting that they are unaware that it even exists. Similarly, they fail to mention that nondischargeability of credit card debts still only applies to purchases for "luxury" goods. Opinions differ about the wisdom and costs of applying these provisions. But it is unconscionable to imply that they would actually apply and prohibit discharge to those to whom they simply would not affect.

Ironically, it appears that the only person described in the story who would be substantively affected by the terms of the current bill would be James Villa, who is currently using Florida's unlimited homestead exemption to shield assets from his creditors. Such eve of bankruptcy relocations would be prohibited even under the current homestead regulations in the bills.

Similar omissions and half-truths characterize their discussion of child support payments and the like. The article discusses divorce but makes no mention of the provisions for child support, alimony, and property settlements that are actually in the bill. Some have argued that these provisions don't go far enough, others have argued that some of them go too far. What is unarguable is that they do in fact exist and are relevant to the debate.

 

Second, it appears that they actually invented some provisions of the bill that don't even exist. Most amazing is the statement that medical expenses incurred in the 90-day period before bankruptcy "could never be written off, no matter how poor the family." This provision does not exist.

• It is easy to demagogue credit card companies and so-called payday lenders. It is more difficult to consider whether individuals will really be made better off by being driven to alternative forms of credit, such as pawn shops, rent-to-owns, retail store credit, or loan sharks. Even if it is concluded that there should be regulation of these lending practices, the article provides no explanation as to why these difficult issues should be jammed into the bankruptcy reform debate, rather than being investigated on their own independent merits.

• The authors believe that isolated anecdotes from "those directly involved in the system" (page 70) are better evidence of what is really happening than actual financial studies. It doesn't appear that they interviewed any creditor's lawyers in this comprehensive "research." Congressional testimony and my personal conversations with creditors' lawyers portray a very different picture than that presented in the article. This isn't to say either side's perceptions are right or wrong. It is simply to observe that different sides have different perspectives and that such interviews are unlikely to produce "truth" or "falsity." Indeed, the unreliability of such personal testimonials is exactly why there have been numerous attempts to quantify the data rather than relying on these subjective opinions.

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